Internap Reports Third Quarter 2010 Financial Results

The information below is a summary. Click here to view the entire release which includes our unaudited GAAP financial statements and supplemental non-GAAP financial measures.

• Revenue of $60.3 million compared with $64.4 million in the third quarter of 2009;
• Segment profit¹ of $28.7 million; segment margin1 of 47.7 percent, up 440 basis points year-over-year;
• Adjusted EBITDA² of $9.1 million, up 19.7 percent year-over-year; adjusted EBITDA margin2 of 15.2 percent;
• Announces 7,000 net sellable square foot expansion of company-controlled data center in Boston;
• Announces new $80 million credit facility, extending borrowing capacity by $45 million over previous facility.

ATLANTA, GA – (November 4, 2010)Internap Network Services Corporation (NASDAQ:INAP, news, filings), a leading provider of end-to-end Internet business products and services, today announced financial results for the third quarter of 2010.

“We are very pleased with the return to top-line growth in our Data center services segment. During the quarter, we sold through a proactive decrease in low-margin partner data center revenue and expanded our company-controlled footprint by 26,500 net sellable square feet,” said Eric Cooney, President and Chief Executive Officer of Internap. “Buoyed by the Data center services revenue growth and the sales momentum for our premier data center facilities, we have the assurance to continue our strategy with a 7,000 square foot expansion of our Boston facility. With total bookings growth of over 40 percent year-over-year and another quarter of solid adjusted EBITDA profitability, we are confidently executing the long-term profitable growth strategy.”

Revenue

• Revenue totaled $60.3 million compared with $64.4 million in the third quarter of 2009 and $60.5 million in the second quarter of 2010. Revenue from Data center services decreased year-over-year but rose sequentially. IP services decreased year-over-year and compared with the second quarter of 2010.
• Data center services revenue declined 6 percent year-over-year and increased 1 percent sequentially to $31.6 million. The company’s ongoing initiative to proactively churn certain less-profitable contracts in partner data centers drove the year-over-year decline. The sequential increase was supported by higher revenue per net sellable square foot and increased occupancy.
• IP services revenue totaled $28.8 million – a decrease of 7 percent compared with the third quarter of 2009 and 2 percent sequentially- as IP revenue churn outpaced traffic growth.

Net (Loss) Income

• GAAP net loss was $(1.7) million, or $(0.03) per share, compared with GAAP net loss of $(2.0) million, or $(0.04) per share, in the third quarter of 2009 and $(1.3) million, or $(0.03) per share, in the second quarter of 2010.
• Normalized net income, which excludes the impact of stock-based compensation expense and items that management considers non-recurring, was $(0.5) million, or $(0.01) per share. This compares with normalized net loss in the third quarter of 2009 of $(0.9) million, or $(0.02) per share, and normalized net income of $1.4 million, or $0.03 per share, in the second quarter of 2010.

Segment Profit and Adjusted EBITDA

• Segment profit was $28.7 million, an increase of 3 percent year-over-year and a decrease of 2 percent sequentially.
• Segment margin was 47.7 percent. Segment profit in Data center services was $11.1 million, or 35.3 percent of Data center services revenue. IP services segment profit was $17.6 million, or 61.2 percent of IP services revenue. Proactive churn of less-profitable partner data center revenue benefited Data center services segment margin compared with the third quarter of 2009. The sequential decrease in Data center services segment margin was driven by higher seasonal power costs. Decreased IP services revenue drove the year-over-year and sequential decrease in segment margins.
• Adjusted EBITDA totaled $9.1 million in the third quarter, 19.7 percent higher than the third quarter of 2009 and down relative to Adjusted EBITDA in the second quarter of 2010 which included a benefit of a payroll tax credit from the State of Georgia of $1.1 million. Adjusted EBITDA margin was 15.2 percent in the third quarter of 2010, up 330 basis points year-over-year and down 120 basis points sequentially. The year-over-year increase in Adjusted EBITDA was driven by higher segment profit and lower cash operating expenses.

Balance Sheet and Cash Flow Statement

• Cash and cash equivalents totaled $68.3 million at September 30, 2010. Total debt was $40.4 million at the end of the quarter, including $20.4 million in capital lease obligations.
• Cash generated from operations for the nine months ended September 30, 2010 was $28.2 million. Capital expenditures over the same period were $43.2 million.

Recent Operational Highlights

Historical trends of key financial and operational metrics can be found in a supplementary data schedule on Internap’s website at http://ir.internap.com/results.cfm.

• We had 2,767 customers under contract at the end of the third quarter 2010.
• Our initiative to proactively churn select, low-margin customer contracts in partner data center facilities continued in the third quarter with approximately 2,000 net sellable square feet returned to these data center partners during the quarter.
• We recently secured a new $80 million credit facility from a syndicate of banks consisting of: Wells Fargo Capital Finance, the agent and lead lender, RBC Bank (USA), and Silicon Valley Bank.
• In response to solid customer demand, we are increasing our company-controlled data center footprint by adding 7,000 net sellable square feet to our existing Boston facility. We expect this expansion to be online in the second quarter of 2011. The new space will have expanded power density capacities of up to 10 kilowatts per rack. The higher power density will make the data center one of the most robust sites in the region.
• We opened our new/expanded data centers in Silicon Valley, Seattle, and Houston in the third quarter, increasing our company-controlled capacity by 26,500 net sellable square feet.

₁Segment profit is a non-GAAP financial measure and is defined in an attachment to this press release entitled “Non-GAAP (Adjusted) Financial Measures.” Reconciliations between GAAP information and non-GAAP information related to Segment Profit is contained in the table entitled “Segment Profit and Segment Margin.”

₂Adjusted EBITDA and Normalized Net Income (Loss) are non-GAAP financial measures and are defined in an attachment to this press release entitled “Non-GAAP (Adjusted) Financial Measures.” Reconciliations between GAAP information and non-GAAP information related to Adjusted EBITDA and Normalized Net Income (Loss) are contained in the tables entitled “Reconciliation of Loss from Operations to Adjusted EBITDA,” and “Reconciliation of Net Loss and Basic and Diluted Net Loss Per Share to Normalized Net Income (Loss) and Basic and Diluted Normalized Net Income (Loss) Per Share” in the attachment.

Conference Call Information

Internap’s third quarter 2010 conference call will be held today at 5:00 p.m. EDT. Listeners may connect to a webcast of the call, which will include accompanying presentation slides, on the investor services section of Internap’s web site at http://ir.internap.com/events.cfm The call can also be accessed by dialing 866-515-9839. International callers should dial 631-813-4875. An online archive of the webcast presentation will be available for one month following the call. An audio-only replay will be accessible from Thursday, November 4, 2010 at 8 p.m. EDT through Thursday, November 11, 2010 at 800-642-1687 using the code 18652348. International callers can access the archived event at 706-645-9291 with the same code.

About Internap

Internap is a leading Internet products and services company that provides The Ultimate Online Experience® by managing, delivering and distributing applications and content with 100 percent uptime service level agreements. With a platform of data centers around the world, managed Internet services and a content delivery network (CDN), Internap frees its customers to innovate, improve service levels and lower the cost of IT operations. Thousands of companies across the globe trust Internap to help them achieve their Internet business goals. For more information, visit http://www.internap.com.

Forward-Looking Statements

This press release contains certain forward-looking statements. These forward-looking statements include statements related to future revenue growth, the benefits to be realized from investments in our business, business turnaround and Internap’s expectations regarding the expansion of data center capacity, including expectations as to occupancy and timing. Because such statements are not guarantees of future performance and involve risks and uncertainties, there are important factors that could cause Internap’s actual results to differ materially from those in the forward-looking statements. These factors include Internap’s ability to achieve or sustain profitability; its ability to expand margins and drive higher returns on investment; its ability to maintain current customers and obtain new ones, whether in a cost-effective manner or at all; its ability to correctly forecast capital needs, demand planning and space utilization; its ability to respond successfully to technological change and the resulting competition; the availability of services from Internet network service providers or network service providers providing network access loops and local loops on favorable terms, or at all; failure of third party suppliers to deliver their products and services on favorable terms, or at all; failures in its network operations centers, data centers, network access points or computer systems; its ability to provide or improve Internet infrastructure services to its customers; and its ability to protect its intellectual property, as well as other factors discussed in Internap’s filings with the Securities and Exchange Commission. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Internap undertakes no obligation to update, amend or clarify any forward-looking statement for any reason.

The information above is a summary. Click here to view the entire release which includes our unaudited GAAP financial statements and supplemental non-GAAP financial measures.

Press Contact

Mariah Torpey
(781) 418-2404
internap@daviesmurphy.com

Investor Contact:

Andrew McBath
(404) 302-9700
ir@internap.com

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